Archive for April, 2011

As reported by Financial Planning in an article that has absolutely nothing to do with its title, Marilyn Mohrman-Gillis of the CFP Board spoke at the Women Advisors Forum in New York City Thursday. She is quoted as stating the country has changed drastically since the passage of Dodd Frank and there is still a lot of work that should be done to implement the new reforms. Mohrman-Gillis also stated she believes there is a chance that Dodd Frank will be challenged in court.

According to IA Watch, The SEC has taken action again Donald Koch, the President and Chief Compliance Officer of Koch Asset Management, alleging he breached his fiduciary duty, failed to seek best execution, didn’t maintain electronic records of trades and neglected his duty as CCO to implement compliance policies and procedures to prevent Advisers Act violations. The issue stems from allegations that Koch was “marking the close” to fool clients.

FA News reports that Brightscope, Inc., a firm that rates thousands of corporate 401(k) retirement plans, is starting a website that will show the disciplinary histories of financial advisors. The site, which is free to investors, has about 450,000 listings on its database and includes information on most investment adviser reps and registered reps. The firm also plans to add listings for insurance brokers within the next 90 days or so.

According to Registered Rep. online, Ameriprise needs to find a buyer for Securities America in a hurry. The firm is facing the potential of mass defections of advisors, particularly its best producers, in which case its value will be damaged even further. Any buyer would have to be substantial enough to absorb SAI and the firm most likely will be sold at a steep discount due to Securities America’s recent problems and a proposed financial settlement of a class action suit filed by investors who claim SAI sold allegedly fraudulent private placements from Medical Capital Holdings and Provident Royalties.

Securities America currently has 1,800 advisors and about $26.3 billion in total client assets as of the end of the first quarter. A sale of the firm may well be the largest deal ever of an independent broker-dealer. There is some speculation that foreign banks or financial services firms might be interested to gain an instant foothold in the U.S. market. Among the insurers, Metlife or Securian are speculated to be interested purchasers. With the insecurity facing so many advisors, it may be a ripe opportunity for RIAs in markets where Securities America currently operates.

RIA Biz is reporting the first fissure in the solidarity of various RIA interest groups concerning the establishment of an SRO for RIAs. The Committee for the Fiduciary Standard, an influential group that includes some of the most respected advisors and service providers in the industry, is now endorsing an SRO being put together by an investor advocate attorney and some of his law students. Although the Committee still advocates the SEC as primary regulator, the group apparently is beginning to think that an SRO is inevitable. As such, the Committee is endorsing the Self-Regulatory Organization for Independent Investment Advisers (SROIIA) as a backup plan. This may well be a pre-emptive move to find an alternative solution to FINRA, which none of the RIA industry groups prefer as an SRO.

Other industry groups such as the Investment Advisers Association, CFP Board of Standards, the National Association of Personal Financial Advisors and the Financial Planning Association are still opposed to an SRO.

According to Financial Planning, Pinnacle Partners Financial Corp. and its president Brian K. Alfaro of San Antonio were suspended indefinitely for failing to comply with a FINRA cease and desist order. Pinnacle and Alfaro were allegedly operating a “boiler room” where numerous brokers solicited investments by placing cold calls on a weekly basis. Pinnacle and Alfaro continued to make fraudulent oral and written misrepresentations connected with their offer and sale of oil and gas joint interests.

NSCP Currents published a copy of the remarks made by Carlo di Florio at NSCP’s 2010 national meeting (held in November 2010). Throughout his speech, Mr. di Florio focused on the SEC’s attempts to reinvent itself. This includes a reform of its enforcement and examination procedures, raising its internal standards, and adopting rules to benefit investors.

Mr. di Florio also focused on specific changes to the SEC’s examination program (while mentioning the potential impact of Dodd-Frank and the “switch”), and the need for firms to develop strong internal controls.

According to Financial Planning, the SEC’s recent “no action” letter to the CFP board states that commission will not bring enforcement actions against broker dealers or RIA’s that share non-public personal customer information with the CFP Board. Previously, broker-dealers and RIA’s cited regulation S-P as preventing them from sharing information with the CFP board regarding customer complaints.

A recent article in NSCP Currents focused on the potential issues that may arise when a compliance officer must confront senior management for potential regulatory violations. The article summarizes a case reported on by Bloomberg News in 2008 about a compliance officer who filed suit against his former firm claiming he was terminated as a result of accusing a principal owner of the firm of front running clients. The article proceeded to address some relevant case law on the area of termination, but as of the date of publication, the case was still pending in the New York court system.

According to IA Watch, U.S. District Court Judge Laura Swain dismissed a lawsuit from two former investors harmed by Bernie Madoff’s Ponzi scheme against the SEC claiming gross negligence for not uncovering the fraud.

According to Judge Swain, “That the conduct in question defied common sense and reeked of incompetency does not indicate that any formal, specific, mandatory policy was ‘likely’ violated.”